Following the backlash to an exclusive shareholder event from Namaste Technologies (TSXV:N), the company said it does not regret hosting the event and issued a response to shareholders regarding the controversy.
Last Wednesday (September 12), Namaste hosted a party in Montreal, Quebec rewarding investors for completing a pledge to hold or increase their position in the company since May in an effort to combat market short sellers.
On Sunday (September 16), during a live stream video, Sean Dollinger, CEO of Namaste, told shareholders they can be “confident” nothing has changed for the company despite losing a deal with Canadian licensed producer (LP) Tilray (NASDAQ:TLRY) as a result of the event.
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“There’s always going to be people trying to throw us off the top. It’s happened before, it happened now and it’s going to keep happening,” Dollinger said during his Namaste 420 Live YouTube show.
“As long as we are the most exciting company in this space we will always have people trying to cause disruption,” he continued. The executive of the company guaranteed to the audience he will not let go of the investors’ money and trust.
Namaste’s YouTube channel had an uploaded video of the event showing investors and company executives celebrating the end of the pledge. Interviews with shareholders showing support for the company were also added to the video. The video was later removed from Namaste’s account.
Investor party leads to Quebec reaction and Tilray drop
Kory Zelickson, co-founder of Namaste, told the Investing News Network (INN) Namaste does not regret hosting the pledge party for its shareholders.
However he apologized for reports showing hired models dressed as nurses. Reportedly the models acting as nurses were offering to register party attendees as medical users for Namaste’s services. According to a report from La Presse, other models were seen offering adult-use cannabis products.
“If that offended anybody, which I can certainly understand, we are very much apologetic for that,” Zelickson said of the models dressed as nurses.
Namaste argued against the claims of recreational cannabis sales and said its entire Canadian play focuses on the medical market through its producer subsidiary Cannmart, which is awaiting for confirmation of a sales license in Canada.
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The party and the report from La Presse caused the Société des alcools du Québec (SAQ), the agency tasked with regulating recreational cannabis use in the province, to challenge the validity of the the event from Namaste and the reported distributed cannabis.
SAQ spokeswoman Linda Bouchard told La Presse there was zero tolerance to the tactics employed by Namaste at the event. The SAQ also issued a warning to Canadian licensed producer (LP) Tilray since the company had signed a sales agreement with Namaste.
“A producer who does business with us cannot be associated with a company that is against the law,” Bouchard added. “Our partners must comply. We must be firm.”
Tilray proceeded to drop Namaste’s agreement. In a statement to INN, the company said:
We were not aware of and did not approve Namaste’s recent promotional activities. We do not believe these types of activities will further legitimize medical cannabis with the medical community.
Namaste contested it only operates in the medical cannabis market through its service and did not infringe in the rules from Quebec at its event.
When asked if the company had time to make its case to Tilray, Zelickson said the producer offered no notice or cause in its termination. The executive guessed Tilray was “strong-armed” to drop Namaste by Quebec.
“It would have been great to work with Tilray, it’s unfortunate that it happened and I can understand their position, if they were feeling the pressure they have to do what’s best for their shareholders,” Zelickson told INN.
In September the two cannabis companies confirmed a purchase agreement in which Namaste would buy “bulk medical cannabis products” from Tilray, for an undisclosed amount for Cannmart.
Dollinger stated the drop from Tilray “does not in any way affect our business strategy, operations or anticipated revenues,” since the company has “enough” supply from other Canadian LPs.
Zelickson added Namaste is seeking a public apology from SAQ on the comments made about the company. Zelickson said the company is considering legal action against La Presse as well.
Investor pledge raises questions
Launched on May 18, alongside both co-founders and executives Dollinger and Zelickson, the Namaste pledge asked investors to join and guarantee to only hold or increase their shares in the company over 90 days.
At the pledge’s launch Dollinger told the Globe and Mail company lawyers had confirmed the promotion as a legal resource for the company.
According to Zelickson, over 150 million shares of Namaste were pledged.
Namaste holders took a hit during the early trading session but managed to rally for a positive close. Shares of the company closed at a price of C$2.96, representing a 4.23 percent increase.
Shares of Tilray suffered a quick drop on Monday morning, only to recover and even continue its monumental growth path of the past month.
The company finished the day with a 2.22 percent increase to reaching a share price of US$119.73. During after hours trading, Tilray was down 0.74 percent.
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Securities Disclosure: I, Bryan Mc Govern, hold no direct investment interest in any company mentioned in this article.